Question 4

You have been given the following information for Innovative Inc, a publicly traded software company. This

information is for next year

 After-tax operating income of $ 78 million

 Sales of $520 million

 After-tax return on capital of 14%

Information for a median software company:

 Is in stable growth, growing at 2%

 50% of Innovative's operating margin

 2 times the sales to capital ratio of Innovative

 Median EV/Sales is 0.7 (market is fairly pricing these companies)

Innovative has same the COC and the growth rate as other software companies

a) Estimate the EV/Sales ratio for Innovative